Nigeria’s Crude Oil Projection Revised Downward

Following the rising spate of oil theft in the country, Renaissance Capital Limited (RenCap) said it has downwardly adjusted its 2013 crude oil production projection for Nigeria from 2.45 million barrels per day to 2.30 million barrels per day.

The financial advisory and research firm which stated this in a report titled: “Nigeria: Downside Risk to Oil Output-Reviewing our Forecasts,” made available to THISDAY yesterday, also identified the floods that ravaged some part of the country last year as another factor that led to the downgrade.

According to RenCap, the seeming recovery in oil output from second quarter of 2012 made it to believe that the trend would continue into 2013.

“However, floods in fourth quarter of 2012 and a pick-up in oil theft in first quarter 2013 compelled us to revise our projections. We downwardly adjust our oil production projection to 2.30 million barrels per day, from 2.45 million barrels per day owing to the increase in oil theft. This implies that growth of 6.9-7 per cent in 2013 is more likely, than our initial 7.1 per cent projection,” it explained.
It argued that the federal government’s budget oil production assumption of 2.53 million barrels per day in the 2013 budget was considered overly optimistic.

It noted that declarations of ‘force majeure’ – a legal step that protects a company from liability when it cannot fulfill a contract for reasons beyond its control, by oil companies in first quarter of 2013 due to an increase in oil theft implied further downside risk to the federal government’s oil production assumption.

To RenCap, as oil makes up 15 per cent of Nigeria’s Gross Domestic Product (GDP), two-thirds of the country’s revenue and over 95 per cent of export earnings, the risk to oil output has material implications on the Nigerian economy.

RenCap added: “Since 2011, Nigeria’s real GDP growth has been undermined by the underperformance of oil GDP when it recorded zero growth and contracted by 0.8 per cent in 2012. This was largely due to a drop in oil output from 2.42 million barrel per day in 2010 to 2.38 million barrels per day and 2.36 million barrel per day in 2011.

“Oil GDP showed signs of a recovery in 2012 when its rate of contraction slowed in 2Q12 and it recorded some modest growth in third quarter 2012, which was attributed to an increase in monitoring in oil producing areas by official security.
Continuing it said: “However, this recovery faltered in fourth quarter 2012, which was partly attributed to a flood-related shutdown in oil production for three weeks in October.”

RenCap also project current account surplus of 6.9 per cent of GDP in 2013, instead of its initial estimate of 7.4 per cent due to slower export earnings growth on the back of lower oil output.